The past year proved to be a genuine obstacle course for companies managing corporate welfare plans. Legislative measures followed one another at a rapid pace, creating significant uncertainty for HR departments and employees alike.
Everything began with the 2025 Budget Law (Law No. 207/2024), which drastically narrowed the definition of “family member” eligible for tax-exempt welfare benefits. Fortunately, at the end of the year, the Italian legislator introduced an important corrective measure through Legislative Decree No. 192/2025. This reform reinstated a broader category of eligible relatives and applied the amendment retroactively as of January 1, 2025.
However, as often happens under the Italian legal framework, this “step back” was not a simple return to the previous regime. A new and fundamental requirement was introduced in order to benefit from the tax exemption: cohabitation.
This article is structured to provide practical and operational guidance for HR professionals, employers, and payroll departments. It clarifies the new rules, addresses doubts regarding retroactivity, and offers practical solutions for managing the transition smoothly and without administrative stress.
What this article covers
- Which family members are once again eligible under corporate welfare plans.
- Why the new “cohabitation” requirement radically changes the approach to reimbursements.
- How to manage the retroactive effect for 2025 with confidence, choosing between payroll adjustments or tax returns.
- Which practical tools employers should implement — such as self-certifications — to protect themselves in the event of tax audits.
From the Budget Law restrictions to the year-end corrective reform
To properly understand the current framework, it is useful to briefly reconstruct the legislative developments that characterized 2025, as they directly impact payroll management and welfare platforms.
The 2025 Budget Law, in an attempt to reorganize personal income tax deductions (IRPEF), amended Article 12 of the Italian Income Tax Code (TUIR), restricting the concept of “family member” exclusively to “cohabiting ascendants.” As a consequence, this limitation significantly affected Article 51 of the TUIR, which represents the core provision governing corporate welfare. Suddenly, highly valuable services — such as reimbursement of care expenses for non-self-sufficient relatives (e.g., parents-in-law) — appeared to lose their tax-exempt status unless very strict conditions were met.
To remedy this issue, which heavily penalized employees, the Government intervened in December through Legislative Decree No. 192/2025, which rewrote paragraph 4-ter of Article 12 of the TUIR.
The new provision restores the previous broader approach to the concept of family. Today, for corporate welfare purposes, the following individuals once again fall within the scope of the exemption:
- The spouse (provided there is no legal and effective separation);
- Children (including children born outside marriage, adopted children, and foster children);
- The other persons identified under Article 433 of the Italian Civil Code, including parents, sons-in-law, daughters-in-law, parents-in-law, brothers, and sisters.
However, this reopening introduced a substantial new element compared to previous years.
The new key requirement: mandatory cohabitation
The real point of attention under the new legislation concerns the conditions applicable to “extended” family members — namely those falling within Article 433 of the Italian Civil Code, such as siblings, parents-in-law, sons-in-law, daughters-in-law, and parents.
While in the past access to welfare benefits for these categories (for example, medical expense reimbursements) was relatively straightforward, the law now introduces an essential condition: cohabitation with the employee (alternatively, the receipt of maintenance payments not deriving from a judicial order).
This represents a substantial limitation. The cohabitation requirement, which historically applied mainly for standard IRPEF deduction purposes, has now become a true “gateway condition” for the tax exemption of corporate welfare benefits. If the employee’s elderly parent does not live with the employee, the related care expenses reimbursed by the company will no longer qualify for tax exemption and will instead constitute taxable employment income.
How can cohabitation be proven? The role of self-certification
In the absence of implementing circulars clearly defining the exact scope of “cohabitation,” consolidated practice suggests that this concept should not be limited to a mere formal residence registration. Rather, it should reflect an actual living arrangement characterized by emotional and material ties.
What should employers do in practice? As withholding agents, companies are required to verify that the conditions for applying the tax exemption are met, although they do not possess investigative powers.
The safest, most practical, and most efficient solution is to require employees to submit a self-certification pursuant to Article 46 of Presidential Decree No. 445/2000. Through this declaration, the employee certifies under criminal liability that they cohabit with the family member for whom the welfare benefit is requested. The employee will then bear the responsibility of retaining documentation capable of demonstrating actual cohabitation in the event of future audits by the Italian Revenue Agency.
The retroactive effect for 2025: no alarm, only flexibility
Legislative Decree No. 192/2025 expressly established that these new rules (expanded family eligibility combined with the cohabitation requirement) apply retroactively from January 1, 2025.
Initially, the concept of “retroactivity” generated concern among HR professionals, raising fears of complex recalculations and mandatory reopening of payroll records. In reality, the correct approach is to view this retroactivity as an opportunity benefiting employees and manageable by companies with significant flexibility.
If, during 2025, an employee received reimbursement relating to a family member (for example, a cohabiting parent-in-law) and that amount was taxed through payroll because of the restrictive rules in force at that time, the employee is now entitled to recover the excess taxes paid, since the exemption has once again become valid for the entire year.
To allow employees to recover these amounts, there are two possible approaches, enabling companies to organize the process according to their own administrative timelines.
Payroll adjustment through year-end tax reconciliation (the direct option): The company may directly intervene as withholding agent during the year-end payroll reconciliation process (to be completed by February 2026). By collecting self-certifications confirming cohabitation for expenses incurred in 2025, the payroll department may reverse the incorrectly taxed amounts and refund the excess IRPEF directly through payroll. This solution also strengthens employee satisfaction by providing a faster reimbursement mechanism.
Recovery through the annual tax return (the autonomous option): If year-end administrative deadlines do not allow the company to process all recalculations, no rights are lost. The company may simply close the year without adjustments. Employees may then independently submit the relevant documentation (withholding tax certification, welfare documentation, and proof of cohabitation) to their tax advisor or tax assistance center when filing their 2026 income tax return. The tax authorities will subsequently refund the excess taxes paid.
Attention to the social security side: why the tax return alone is not enough
As long as the issue is analyzed purely from a tax perspective (IRPEF and local surtaxes), both options allow employees to recover their money. However, when shifting the focus to social security contributions (INPS), the scenario changes significantly.
Under the principle of harmonization of taxable bases, corporate welfare benefits enjoy a double exemption: they are exempt both from IRPEF and from INPS contributions. Therefore, if in 2025 a reimbursement was treated as ordinary taxable compensation because of the restrictive rules then in force, both tax and social security contributions were paid on that amount (approximately 9.19% borne by the employee and roughly 28–30% borne by the employer).
This is where the strategic difference between the two recovery methods becomes evident.
The limitation of the annual tax return: Since the income tax return is exclusively a tax instrument, it only allows employees to recover taxes. The Italian Revenue Agency cannot refund INPS contributions. Consequently, if this route is chosen, the employee contributions will merely increase the employee’s pension position without generating immediate liquidity, while the employer permanently loses approximately 30% of employer-side contributions unnecessarily paid during the year.
The advantage of the payroll adjustment: By opting for direct payroll management, the company not only benefits the employee — who immediately recovers both taxes and social security contributions — but also protects its own financial position. By reversing the incorrect taxable amount through payroll, the employer generates a social security credit and effectively recovers the excess employer contributions previously paid.
An important operational warning: Although payroll adjustment clearly appears to be the most advantageous solution for both parties, retroactively amending social security contribution flows for an entire year remains a delicate operation.
At present, it is advisable to await the expected operational guidelines from the competent authorities (INPS and the Italian Revenue Agency). Only official practice documents will be able to confirm and define the exact technical procedures — including UniEmens reporting codes — required to manage these retroactive adjustments without exposing companies to formal defects or cross-audits.
Practical actions for HR departments: policies and communication
The stabilization of this legislative framework requires companies to implement several small but fundamental procedural adjustments in order to ensure the correct management of welfare plans in 2026 and beyond.
Updating welfare policies: Corporate welfare regulations should be reviewed. Internal policies must expressly mention the family members referred to in Article 433 of the Italian Civil Code and, above all, clearly establish the mandatory cohabitation requirement for accessing reimbursements or services intended for these categories.
Updated documentation templates: Companies should immediately prepare self-certification templates pursuant to Presidential Decree No. 445/2000, to be signed and uploaded by employees onto welfare platforms when requesting benefits for extended family members.
Internal communication: Clear communication with employees is essential. A brief internal notice explaining the expansion of eligible family members, while transparently clarifying the new cohabitation requirement, will help prevent reimbursement requests that would ultimately be rejected or taxed. In addition, companies should promptly communicate which recovery method they intend to adopt for 2025 reimbursements (payroll adjustment or tax return), thereby properly managing employee expectations.
Conclusion
The legislative correction concerning corporate welfare positively concludes a complex year by once again allowing employees to use their benefits to support a broader family network. The reinstatement of the categories identified under Article 433 of the Italian Civil Code is undoubtedly positive news, but it also introduces the unavoidable obligation to prove cohabitation.
As highlighted above, the retroactive effect for 2025 is not merely a bureaucratic complication, but rather a strategic issue. Simply telling employees to “recover the amounts through their tax return” means depriving companies of the valuable opportunity to recover excess INPS contributions. The payroll adjustment route is undoubtedly the most advantageous solution for all parties involved, although it requires a structured approach and, above all, formal guidance from the competent authorities.
In this transition phase, technical expertise is what makes the difference between merely complying with the rules and turning them into a strategic advantage.
Are you ready to act as soon as INPS and the Italian Revenue Agency release their operational guidelines? Do you need support in updating your welfare policies and implementing cohabitation self-certification procedures? Do not allow your company to lose thousands of euros in unrecoverable social security contributions.
📩 Contact us today for tailored assistance.
Prepared with the contribution of Macrelli e Bartolini Associati